Is Your PIP Worth It?

I watched the big tech earnings come through last week and kept thinking about a conversation I have with owners almost every day.

Microsoft and Amazon both spent enormous amounts of money building data centers, and their stock went up. Alphabet and Meta spent enormous amounts of money too, and their stock went down.

At first that looks random, but it isn't. The companies that got rewarded could show the money they invested was already providing a return. The ones that got punished couldn't show it yet.

That's the same test a buyer runs on your hotel.

Values here in the Intermountain West are off the peak, roughly 15% by my read. Buyers aren't paying for potential the way they were two or three years ago. They're paying for what the property actually produces in cash flow.

Which brings me to everyone's favorite subject: PIPs.

When a brand hands you a PIP, the natural first reaction is to figure out how to pay for it. That's the wrong first question. The first question you should be asking is whether this is the most efficient use of your capital.

Sometimes the answer is yes. If you're running below your competitive set, a renovation usually has real value. You can point at the RevPAR index, show what a refreshed product does in your market, and put real math in front of a lender or a buyer. The juice is worth the squeeze, so spend the capital.

But if you're already at or near the top of your index, be careful. There may not be much room left to capture. You'd be putting in $2 or $3 million to hold a position you already have. That happens more than people think, and not enough owners run the numbers before they commit.

If that's where you are, selling ahead of the renovation is a legitimate option. Rooms out of order cost you revenue while the work is happening, and the ADR growth that justifies the spend can take several years to show up in property value. You're paying today for a number that may not arrive until you're ready to sell anyway.

Selling isn't the only path either. Negotiating the scope down works more often than owners expect. So does holding without the PIP if your franchise agreement gives you room.

The mistake is answering the wrong question first. Before you figure out how to pay for a PIP, figure out whether you should. If it's helpful, I'm glad to run the scenarios with you.

Consumers: Watch What They Do, Not How They Feel

Consumers say they feel terrible. They are spending anyway. That gap is the whole story this year, and it favors our markets more than the headlines suggest.

In April, U.S. consumer sentiment hit its lowest point in 75 years, per Tourism Economics. Gas is over $4.50 a gallon and international inbound travel is down 4.3%. Read only the national headlines and you would brace for a rough year.

The numbers say otherwise. CoStar and Tourism Economics just raised their 2026 RevPAR forecast to 2.8% growth, up from 0.6% earlier this year. ADR is projected up 2%, occupancy near 62.8%, and RevPAR is set to grow in every chain scale, including limited-service. The industry already recovered last year's RevPAR decline in the first four months of 2026. The engine is a labor market that keeps holding, so people stay unhappy and keep spending.

Here is why that lands well across the Mountain West and Northern Plains. The demand holding up is domestic, drive-to, and experience-driven, which is exactly what Utah, Idaho, Wyoming, Montana, and the Dakotas run on. The international slowdown hurting gateway cities barely touches a park-gateway town or a secondary business market. One regional watch item: Canadian travel is down sharply again this year, and that lands harder near the northern border than it does nationally. If you operate in the Dakotas or northern Montana, keep an eye on that mix.

So what do you do with it?

If you are tired of the headlines and wondering whether it is the wrong time to sell or refinance, the transaction data says the opposite. I have talked with owners this spring who nearly shelved a sale over the news, only to watch the numbers tell them to move. Pricing power is back and buyers are active. Do not let sentiment talk you out of a sound decision.

If you own select-service or midscale, which is most of our region, know exactly who your guest is. Households earning $150,000 or more drive 51% of leisure lodging spend, so if your guest is rate-sensitive, protect margin through ancillary revenue and operational discipline rather than chasing rate you cannot hold.

And if you are looking to grow, demand is broadening, not narrowing, and limited-service is forecast to grow through year-end. The opportunity is buying the right asset in the right market, not waiting for the mood to lift.

Watch what guests do, not how they say they feel. The spread between the two is where this year's opportunity lives in our markets.

Want to talk through what this means for your property? Reach out and we will run the numbers together.

The Depreciation Conversation Buyers Are Having Before They Close

Sophisticated hotel buyers are increasingly factoring cost segregation into their acquisition underwriting, and it's changing how some deals pencil.

The IRS default depreciates a hotel as a single 39-year structure. Cost segregation reclassifies components into 5, 7, and 15-year categories, accelerating a significant portion of deductions into the early years of ownership. With bonus depreciation at 100% for 2025 and 2026, those reclassified components can be deducted in full in the year of acquisition. On a $5M hotel, that can mean $800K or more in first-year deductions.

For the right buyer, that number matters a lot. Depending on their tax structure, first-year depreciation from a cost seg study can offset a substantial portion of the property's NOI in year one, effectively sheltering early cash flow from federal income tax. For buyers who qualify as real estate professionals, the deductions can go further and offset income beyond the property itself. Either way, the after-tax return in the early years of ownership looks materially better than the before-tax numbers suggest.

I'm currently working with buyers who are acquiring hotels specifically around this strategy, with 2026 tax planning driving their timeline. These are motivated, well-capitalized buyers who are actively looking for the right asset before year-end. A buyer already running this playbook is often more aggressive on price than one who isn't. If you're a seller, that's worth a conversation.

If a sale is on your radar for 2026, I'm happy to walk through current buyer demand, recent comps, and whether your asset fits what these buyers are looking for. Reach out for a confidential conversation.